By Paul Mladjenovic. January 22, 2010.
Copyright 2010. Paul Mladjenovic. All rights reserved.
Yes…2008-09 was a bruising time period. Many securities plunged and many accounts were massacred. Although we got through it, there is an uneasy feeling that more trouble is yet to come.
I expect that more catastrophes are heading our way since the fundamentals for our economy are still very weak and Washington is still working on policies that will do more harm than good. In the past twelve months, our expanding federal government has added trillions more in debt to our already massive debt burden.
OUR GOVERNMENT CAN NOT SPEND OUR COUNTRY INTO
TRLLIONS OF DOLLARS OF DEBT WITHOUT CONSEQUENCE.
I am working on my next set of forecasts and seminars but before they are out, I want everyone (and I mean EVERYONE) to consider 3 simple things to gain greater financial peace of mind:
• Diversify away from paper assets. As I have written before, paper assets have “counter-party risk”. Any “paper” investment that you have (such as stocks, bonds, ETFs, mutual funds, cash accounts, etc.) have counter-party risk. In other words, that investment’s value is tied to someone else’s promise or performance. A stock can go worthless if that company ceases to perform well (or just ceases to perform!). Bonds can become worthless if the borrower can’t or won’t pay. What should you consider? Add some gold or silver physical bullion to your asset portfolio. Gold and silver bullion are among the very few investments that do not have counter-party risk. They have their own, unique intrinsic value and that has been true for thousands of years. It will continue to be true for years to come.
• Accumulate essentials. As odd as this may sound for some of you, consider starting a pantry or otherwise consider stocking up on essentials such as non-perishable foods, extra water, etc. No…I am not asking you to become a survivalist or a hermit. I consider this is to be just another form of diversification. The world is too precarious right now and is quite vulnerable to disruptions. Severe inflation is not far off. Potential problems can come from a variety of expected and unexpected venues. What do you think will have greater value a few years from now…a dollar or a can of soup?
• Re-focus your portfolio with emphasis on “human need”. You should consider stocks and ETFs of companies and industries that provide goods and services that are actually NEEDED. Think about what people will continue to buy no matter how good or bad the economy is. I think that part of your long-term picture should include commodities.
Trillion-dollar tinkering will continue in Washington. Ongoing massive blunders and financial difficulties will need to be faced by all of us. Take steps now. You will be glad you did.
If you want to be alerted to the next financial educational programs and essays, feel free to follow me at www.twitter.com/paulmlad.
We have to be mindful of the fact that much of today’s difficulties (and tomorrow’s) is not due to some “Democrat” or “Republican” or strictly to something that is “left-wing” or “right-wing”. It is primarily due to Statism. “Statism” is the idea and practice that government should kept growing and becoming more and more involved in our private lives, businesses and finances. Unfortunately, most politicians across the political landscapes tend to be statists (at varying degrees). For the public, this is a fatal attraction since the unintended consequence is that it breeds greater dependence for more and more of our citizenry.
The problem with dependence means setting yourself up for vulnerability. Don’t let it happen! Today, there are millions of adults in our country that are dependent on others (such as government). What happens when government fails? Would you want to depend on a government bureaucracy such as the state of California or on a corporation such as General Motors (which is also dependent on government)? What other government agencies and corporations are at risk? What will happen when the federal government itself starts having financial problems? How about Social Security?
The more you strive for independence and self-sufficiency, the safer you will be.
----------------------------
Paul Mladjenovic, CFP is the author of Stock Investing for Dummies and the audio “HOW TO CASH IN ON THE COMMODITIES SUPER BOOM”.
Friday, January 22, 2010
Tuesday, December 15, 2009
Is Buy and Hold Dead?
Copyright 2009. By Paul Mladjenovic
www.ProsperityNetwork.net
In today’s turbulent, volatile, roller-coaster market, is the age-old adage about “Buy and Hold” bad advice? In recent months I have heard or read comments such as…
“The “Buy and hold strategy” is an archaic idea and would be financial suicide in today’s market.”
“People are better off with short-term strategies so that they can try to buy before the market goes up and sell before the market goes down. Then…when the market goes down, that is a buying opportunity. Use the volatility in your strategies”
“The “Buy and Hold Strategy” was fine a long time ago when markets were different. It is not a good strategy for today’s roller-coaster markets”
I am sure that you have read or heard similar remarks. Certainly, as you have read my essays you would know that I have written much about the “sea change” in recent years for our economy and the financial markets. There are many strategies that were fine years ago but would indeed be dangerous today.
But does a “sea change” mean that fairly reliable strategies are in danger of becoming obsolete? It certainly depends on the strategy and it definitely depends on who you are, what your financial profile is, what you are trying to accomplish and what type of assets you are investing in. Let’s take a look at “Buy and hold”.
I am sure that if you “buy and hold” bad investments then you will eventually be in trouble. However, if you “buy and hold” good investments, it would be a different story. We all know that the decade of 2000-2009 had lots of wild rides and the market had many nail-biting moments, but how did the “buy and hold” strategy do?
How did “buy and hold” as a strategy fair for different assets since the beginning of the decade?
-------------------------------------------------------------
Asset class January 2000 Recent price Gain/Loss
(high price) (Nov. 30, 2009) After 9 ½ years…)
The “Dow” (DJIA) 11,722 10,345 DOWN 12%
Nasdaq Composite 4,235 2,145 DOWN 49%
S&P 500 1,465 1,096 DOWN 25%
The value of the dollar 99.87 85.64 DOWN 14%
(based on dollar index)
Oil 21 71 UP 238%
Gold 288 1180 UP 310%
Silver 5 18 UP 260%
----------------------------------------------------
As you can see from the above table, “Buy and Hold” was dumb for some things and very smart for others. There was nothing wrong with the strategy…it depended on the particular investment vehicle.
Very recently, I was asked how I did during the recent market mayhem. I answered quite honestly that a batch of my favorite stocks and ETFs were hit very hard during late 2008-early 2009. Some of the positions were down a bone-jarring 50-70%. Did it bother me? Sure…why wouldn’t it? But these were quality securities that were intended as long-term core holdings and not capricious vehicles to jump in and out of. “Buy and Hold” means that you “measure twice, cut once”. Those stocks and ETFs were bought early in the decade and they are almost all up by triple-digit percentages…Yes!…in spite of the chaos of 2008-2009.
“Buy and Hold” as a strategy is fine. It has served me and many other patient investors well. It is still an important feature of patient, successful, long-term investing. The point is to understand that particular investment and what are the economy, financial & political mega-trends that unfold over a long period of time. Good investments will zig-zag upward over the long term while bad investments will zig-zag downward during the same time frame.
If you would like a good course on how to invest, you can check out my national seminar entitled “The $50 Wealth-Builder” at www.ProsperityNetwork.net (see Bronze package). I cover stocks, mutual funds, ETFs, precious metals and real estate.
What mega-trends do I see coming? For the coming years, I expect the commodities bull market to continue and I tell my students that investments tied to “human need” will excel. To learn how to invest in today’s economy, the audio financial seminar mentioned above will provide you with the guidance you will need. In spite of the recent stock market rally, I believe that my twin-forecast will come to pass in the next few years; We will see both rising inflation and a depressed economy unless they radically change course in Washington (Don’t hold your breath!).
-----------------------------------
Paul Mladjenovic, CFP is the instructor of the national financial seminar “The $50 Wealth-Builder” and the author of “Stock Investing for Dummies” and “Precious Metals Investing for Dummies. His website is www.ProsperityNetwork.net.
www.ProsperityNetwork.net
In today’s turbulent, volatile, roller-coaster market, is the age-old adage about “Buy and Hold” bad advice? In recent months I have heard or read comments such as…
“The “Buy and hold strategy” is an archaic idea and would be financial suicide in today’s market.”
“People are better off with short-term strategies so that they can try to buy before the market goes up and sell before the market goes down. Then…when the market goes down, that is a buying opportunity. Use the volatility in your strategies”
“The “Buy and Hold Strategy” was fine a long time ago when markets were different. It is not a good strategy for today’s roller-coaster markets”
I am sure that you have read or heard similar remarks. Certainly, as you have read my essays you would know that I have written much about the “sea change” in recent years for our economy and the financial markets. There are many strategies that were fine years ago but would indeed be dangerous today.
But does a “sea change” mean that fairly reliable strategies are in danger of becoming obsolete? It certainly depends on the strategy and it definitely depends on who you are, what your financial profile is, what you are trying to accomplish and what type of assets you are investing in. Let’s take a look at “Buy and hold”.
I am sure that if you “buy and hold” bad investments then you will eventually be in trouble. However, if you “buy and hold” good investments, it would be a different story. We all know that the decade of 2000-2009 had lots of wild rides and the market had many nail-biting moments, but how did the “buy and hold” strategy do?
How did “buy and hold” as a strategy fair for different assets since the beginning of the decade?
-------------------------------------------------------------
Asset class January 2000 Recent price Gain/Loss
(high price) (Nov. 30, 2009) After 9 ½ years…)
The “Dow” (DJIA) 11,722 10,345 DOWN 12%
Nasdaq Composite 4,235 2,145 DOWN 49%
S&P 500 1,465 1,096 DOWN 25%
The value of the dollar 99.87 85.64 DOWN 14%
(based on dollar index)
Oil 21 71 UP 238%
Gold 288 1180 UP 310%
Silver 5 18 UP 260%
----------------------------------------------------
As you can see from the above table, “Buy and Hold” was dumb for some things and very smart for others. There was nothing wrong with the strategy…it depended on the particular investment vehicle.
Very recently, I was asked how I did during the recent market mayhem. I answered quite honestly that a batch of my favorite stocks and ETFs were hit very hard during late 2008-early 2009. Some of the positions were down a bone-jarring 50-70%. Did it bother me? Sure…why wouldn’t it? But these were quality securities that were intended as long-term core holdings and not capricious vehicles to jump in and out of. “Buy and Hold” means that you “measure twice, cut once”. Those stocks and ETFs were bought early in the decade and they are almost all up by triple-digit percentages…Yes!…in spite of the chaos of 2008-2009.
“Buy and Hold” as a strategy is fine. It has served me and many other patient investors well. It is still an important feature of patient, successful, long-term investing. The point is to understand that particular investment and what are the economy, financial & political mega-trends that unfold over a long period of time. Good investments will zig-zag upward over the long term while bad investments will zig-zag downward during the same time frame.
If you would like a good course on how to invest, you can check out my national seminar entitled “The $50 Wealth-Builder” at www.ProsperityNetwork.net (see Bronze package). I cover stocks, mutual funds, ETFs, precious metals and real estate.
What mega-trends do I see coming? For the coming years, I expect the commodities bull market to continue and I tell my students that investments tied to “human need” will excel. To learn how to invest in today’s economy, the audio financial seminar mentioned above will provide you with the guidance you will need. In spite of the recent stock market rally, I believe that my twin-forecast will come to pass in the next few years; We will see both rising inflation and a depressed economy unless they radically change course in Washington (Don’t hold your breath!).
-----------------------------------
Paul Mladjenovic, CFP is the instructor of the national financial seminar “The $50 Wealth-Builder” and the author of “Stock Investing for Dummies” and “Precious Metals Investing for Dummies. His website is www.ProsperityNetwork.net.
Thursday, December 10, 2009
How Government hurts Job Creation
From a prior post, I discussed how jobs are created. To summarize, here is a quick list...
1. Someone starts a business (the entrepreneur)
2. He/She struggles to get it established and grow it.
3. If the enterprise succeeds and does indeed grow, he/she hires someone
to help with running and managing the enterprise.
4. As the enterprise grows, more help is needed to run it so the business owner hires more people.
In a nutshell, that is how it works. So it is important to remember that business start-up is the "seed" while products, services and...yes!...JOBS are the "fruit".
Therefore, our society (especially the government) needs to encourage business development and make it as easy as possible for business to flourish. In addition, we need to make it easy for businesses to hire. However, this is not reality.
government makes it very difficult for a business to flourish and to hire more employees. Think for a moment, what it takes a business to hire even a single person.
Make believe that you are a businessperson. Here is what you should expect:
1. You must be aware of federal labor laws that are voluminous and constantly changing. This includes (but is not limited to) federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.
2. You must be aware of state labor laws that are voluminous and constantly changing. This includes (but is not limited to) state federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.
3. Federal minimum wage laws must be complied with even if you think that the market value of the labor provided is not worth it.
4. Most states also have separate minimum wage laws that must be complied with.
5. You must file monthly/quarterly/annual payroll reports for federal & state agencies. Penalties for filing late or erroneously may apply.
6. The government mandates that you meet (where necessary) rules, reporting and fees related to workmen's compensation issues and insurance.
7. There are federal mandated payroll taxes that must be paid by the employer.
Example: The employer must pay his/her share of the FICA and Medicare payroll taxes which amounts to 7.65% on top of and in addition to any wages paid. Don't forget the state!
8. For some job categories, government mandates that your business must provide and or pay for certain conditions and special services depending on the employee and job function.
9. You must seek or have (pay for) legal services just in case your employee decides to sue you for anything that falls short of expectations and other potential issues related to health, disability, bias, workload, lack of recognition, unfair compensation, etc.
10. If your employee decides to take "family leave" you will have to pay them directly for non-work during a period that could exceed 12 weeks or indirectly to a temporary worker to cover job duties in the absence of the worker.
11. If you decide to fire that employee, the burden falls on you to prove your case. Depending on the reason and or the state or industry this includes (but is not limited to) properly filing the paperwork, providing substantiation for your case, expensive legal assistance to help you process the termination.
I remind you...THIS IS A PARTIAL LIST.
We can't ask small business to hire more folks and then make it much more difficult to justify doing so.
All of us need to understand that "wages" paid to a worker is not the same as the "cost" (and risk) of hiring and keeping that worker.
When you add up all the costs (direct and indirect) of hiring someone, it can easily be 40% higher than the wages or salary that the worker sees.
WHEN YOU INCREASE THE COSTS AND RISKS OF HAVING AN EMPLOYEE, THEN THE DEMAND FOR AN EMPLOYEE GOES DOWN. WHEN DEMAND GOES DOWN, YOU HAVE MORE UNEMPLOYMENT.
Please share these thoughts with others...especially if you want to see more jobs in America...not less.
Paul Mladjenovic
P.S. This is a major reason why I think that everyone should start their own home-based business as a solo entrepreneur. Part-time or full-time, it should be part of your money-earning strategies. Learn more starting a home business (click here).
1. Someone starts a business (the entrepreneur)
2. He/She struggles to get it established and grow it.
3. If the enterprise succeeds and does indeed grow, he/she hires someone
to help with running and managing the enterprise.
4. As the enterprise grows, more help is needed to run it so the business owner hires more people.
In a nutshell, that is how it works. So it is important to remember that business start-up is the "seed" while products, services and...yes!...JOBS are the "fruit".
Therefore, our society (especially the government) needs to encourage business development and make it as easy as possible for business to flourish. In addition, we need to make it easy for businesses to hire. However, this is not reality.
government makes it very difficult for a business to flourish and to hire more employees. Think for a moment, what it takes a business to hire even a single person.
Make believe that you are a businessperson. Here is what you should expect:
1. You must be aware of federal labor laws that are voluminous and constantly changing. This includes (but is not limited to) federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.
2. You must be aware of state labor laws that are voluminous and constantly changing. This includes (but is not limited to) state federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.
3. Federal minimum wage laws must be complied with even if you think that the market value of the labor provided is not worth it.
4. Most states also have separate minimum wage laws that must be complied with.
5. You must file monthly/quarterly/annual payroll reports for federal & state agencies. Penalties for filing late or erroneously may apply.
6. The government mandates that you meet (where necessary) rules, reporting and fees related to workmen's compensation issues and insurance.
7. There are federal mandated payroll taxes that must be paid by the employer.
Example: The employer must pay his/her share of the FICA and Medicare payroll taxes which amounts to 7.65% on top of and in addition to any wages paid. Don't forget the state!
8. For some job categories, government mandates that your business must provide and or pay for certain conditions and special services depending on the employee and job function.
9. You must seek or have (pay for) legal services just in case your employee decides to sue you for anything that falls short of expectations and other potential issues related to health, disability, bias, workload, lack of recognition, unfair compensation, etc.
10. If your employee decides to take "family leave" you will have to pay them directly for non-work during a period that could exceed 12 weeks or indirectly to a temporary worker to cover job duties in the absence of the worker.
11. If you decide to fire that employee, the burden falls on you to prove your case. Depending on the reason and or the state or industry this includes (but is not limited to) properly filing the paperwork, providing substantiation for your case, expensive legal assistance to help you process the termination.
I remind you...THIS IS A PARTIAL LIST.
We can't ask small business to hire more folks and then make it much more difficult to justify doing so.
All of us need to understand that "wages" paid to a worker is not the same as the "cost" (and risk) of hiring and keeping that worker.
When you add up all the costs (direct and indirect) of hiring someone, it can easily be 40% higher than the wages or salary that the worker sees.
WHEN YOU INCREASE THE COSTS AND RISKS OF HAVING AN EMPLOYEE, THEN THE DEMAND FOR AN EMPLOYEE GOES DOWN. WHEN DEMAND GOES DOWN, YOU HAVE MORE UNEMPLOYMENT.
Please share these thoughts with others...especially if you want to see more jobs in America...not less.
Paul Mladjenovic
P.S. This is a major reason why I think that everyone should start their own home-based business as a solo entrepreneur. Part-time or full-time, it should be part of your money-earning strategies. Learn more starting a home business (click here).
Wednesday, December 2, 2009
How to Create a Real Job...
Recent times have shown us the worst job market since the Great Depression. Right now, politicians, economists and other public commentators are discussing and debating the question...
"How do we create jobs?"
The odd thing is that the leading decision makers in Washington have NEVER personally created a job. That's right...the top economic decision makers in the Obama administration and the congressional leadership have NEVER run a business or have ever met a payroll. That is incredible to me. We have people trying to make policy that allegedly would lead to "job creation" that are basically clueless about how a real job is actually created. That has got to make your jaw drop.
That would be like getting a bunch of bureaucrats together to figure out the rules for brain surgery (well...that's not really so far-fetched since that is happening right now in the healthcare debate but that's a different topic). Anyway...
I think that it is important for us to realize how a job is actually made. And I mean a "private job". You have heard a lot about "government jobs" and how the government is expanding lately and "adding jobs" as they expand government agencies.
Please don't confuse "government jobs" with "real jobs" as there is a crucial difference. Also if a reader of this post works for the government please do not take offense as you need to know the difference as well.
Important point:
THE GOVERNMENT CAN NOT CREATE A SINGLE JOB AND HAS NEVER CREATED A SINGLE JOB. WHY? BECAUSE THE ONLY WAY GOVERNMENT CAN "CREATE A JOB" IN A GOVERNMENT AGENCY IS BY FIRST DESTROYING A JOB IN THE PRIVATE SECTOR.
If a government agency "hires" a person and then pays that person..say...$50,000, it must first take by force $50,000 from the private economy. Doing so then removes the money necessary to create a job in the private economy. The more the government grows, the more resources it takes...by FORCE...from the private economy wheich subsequently deprives the private economy from using those resources more productively as a private job.
Remember that a private job is involved in the production of goods and services. From this, taxes are paid to fund the government's activities. In this sense we can see that government jobs are basically funded by private jobs.
Some may point out that some government jobs are not funded by taxes but instead are funded by government borrowing. This does not change the dynamic; it may only change the timing. Jobs created by government debt today must be ultimately paid for by destroying future private jobs.
A healthy economy needs private job creation if it is to grow and ultimately pay for current and future goods and services and for government activity (which of course includes government jobs).
The bottom line is that private job growth is vital for both the private and the public sector. This leads us to the main question..."How do we create a real job?"
Keep in mind that real jobs are created as a by-product of business formation, growth and expansion. This is why entrepreneurs and business start-ups are an EXTREMELY important part of the job creation process. Entrepreneurs are the "seeds" while jobs are the "fruits".
If we really want to get our economy back on a healthy growth track, we MUST encourage business start-up, business formation and business expansion. We must embrace and enact policies that ignite and encourage entrepreneurial activities.
That includes low taxes, sensible regulations and making it as easy as possible for anyone and everyone to turn their talents, skills and efforts into a new business.
I have taught thousands of people on how to start a home business in a seminar that I have done for over two decades and I am also a full-time entrepreneur as well so I practice what I preach. I even tell those that already have a job to do a business part-time from home. All of us have hobbies, talents, skills, experience and expertise...why not convert this is into a business in your spare time?
Right now, starting a home business should be considered an economic necessity. After all, the first "job" that gets created is that of the entrepreneur.
For more information about my home business seminar, go to www.SuperMoneyLinks.com or click here. For 2010, don't just wait for prosperity...make it happen.
"How do we create jobs?"
The odd thing is that the leading decision makers in Washington have NEVER personally created a job. That's right...the top economic decision makers in the Obama administration and the congressional leadership have NEVER run a business or have ever met a payroll. That is incredible to me. We have people trying to make policy that allegedly would lead to "job creation" that are basically clueless about how a real job is actually created. That has got to make your jaw drop.
That would be like getting a bunch of bureaucrats together to figure out the rules for brain surgery (well...that's not really so far-fetched since that is happening right now in the healthcare debate but that's a different topic). Anyway...
I think that it is important for us to realize how a job is actually made. And I mean a "private job". You have heard a lot about "government jobs" and how the government is expanding lately and "adding jobs" as they expand government agencies.
Please don't confuse "government jobs" with "real jobs" as there is a crucial difference. Also if a reader of this post works for the government please do not take offense as you need to know the difference as well.
Important point:
THE GOVERNMENT CAN NOT CREATE A SINGLE JOB AND HAS NEVER CREATED A SINGLE JOB. WHY? BECAUSE THE ONLY WAY GOVERNMENT CAN "CREATE A JOB" IN A GOVERNMENT AGENCY IS BY FIRST DESTROYING A JOB IN THE PRIVATE SECTOR.
If a government agency "hires" a person and then pays that person..say...$50,000, it must first take by force $50,000 from the private economy. Doing so then removes the money necessary to create a job in the private economy. The more the government grows, the more resources it takes...by FORCE...from the private economy wheich subsequently deprives the private economy from using those resources more productively as a private job.
Remember that a private job is involved in the production of goods and services. From this, taxes are paid to fund the government's activities. In this sense we can see that government jobs are basically funded by private jobs.
Some may point out that some government jobs are not funded by taxes but instead are funded by government borrowing. This does not change the dynamic; it may only change the timing. Jobs created by government debt today must be ultimately paid for by destroying future private jobs.
A healthy economy needs private job creation if it is to grow and ultimately pay for current and future goods and services and for government activity (which of course includes government jobs).
The bottom line is that private job growth is vital for both the private and the public sector. This leads us to the main question..."How do we create a real job?"
Keep in mind that real jobs are created as a by-product of business formation, growth and expansion. This is why entrepreneurs and business start-ups are an EXTREMELY important part of the job creation process. Entrepreneurs are the "seeds" while jobs are the "fruits".
If we really want to get our economy back on a healthy growth track, we MUST encourage business start-up, business formation and business expansion. We must embrace and enact policies that ignite and encourage entrepreneurial activities.
That includes low taxes, sensible regulations and making it as easy as possible for anyone and everyone to turn their talents, skills and efforts into a new business.
I have taught thousands of people on how to start a home business in a seminar that I have done for over two decades and I am also a full-time entrepreneur as well so I practice what I preach. I even tell those that already have a job to do a business part-time from home. All of us have hobbies, talents, skills, experience and expertise...why not convert this is into a business in your spare time?
Right now, starting a home business should be considered an economic necessity. After all, the first "job" that gets created is that of the entrepreneur.
For more information about my home business seminar, go to www.SuperMoneyLinks.com or click here. For 2010, don't just wait for prosperity...make it happen.
Wednesday, November 25, 2009
You Struggle...They Splurge
According to a recent news item, the federal budget (under the first year of the Obama administration and the new Congress) will hit $3.52 trillion. It will be the largest single year federal budget ever. The federal deficit for 2009 surpassed $1.4 trillion; this is the largest deficit ever. Deficits exceeding $1 trillion per year are expected for years to come.
The spending in Washington by the executive and legislative branches have been extraordinarily and horrendously extravagant. Meanwhile...
Our country is experiencing record unemployment. The private economy is struggling with unprecedented financial difficulties, mortgage defaults, overindebtedness and soaring bankruptcies.
The government is saddling our economy with trillion-dollar spending while taxes and regulations are rising at all levels of government which will only increase the burden on the private economy.
At what point will the public scream "ENOUGH!"?
The spending in Washington by the executive and legislative branches have been extraordinarily and horrendously extravagant. Meanwhile...
Our country is experiencing record unemployment. The private economy is struggling with unprecedented financial difficulties, mortgage defaults, overindebtedness and soaring bankruptcies.
The government is saddling our economy with trillion-dollar spending while taxes and regulations are rising at all levels of government which will only increase the burden on the private economy.
At what point will the public scream "ENOUGH!"?
Monday, October 12, 2009
Part II: Deflation or Inflation? Here is the Answer…
By Paul Mladjenovic
www.ProsperityNetwork.net
Copyright 2009. Paul Mladjenovic. All rights reserved.
Picking up from Part I of this “two part mini-series”, we are covering the inflation/deflation debate. There are tons of top-notch economic commentators on both side of the debate. As we mentioned, the debate centers on the visible sign of deflation vs. inflation…”prices”.
In part one, we highlighted what I think is an important summary of what affects “prices”:
THE PRICES OF GOODS, SERVICES AND ASSETS
ARE MOST AFFECTED BY TWO FUNDAMENTAL FACTORS:
1. THE MONEY SUPPLY (primarily enacted by government)
2. DEMAND AND SUPPLY (primarily enacted by the marketplace)
Demand and supply are an important factor in this debate and I believe that this becomes a source of misunderstanding. Inflationists talk about the money supply exploding and that this massive increase will (sooner or later) mean higher prices and even to the point of hyperinflation. The deflationists tell us that we are (and will continue to be) in a powerful deflationary environment. What gives?
Demand and supply complete the observation. Look…if a trillion dollars is printed right now but this money is not flowing toward anything (“demand”) then you probably won’t see a price increase. Demand has decreased for some goods, some services and some assets in recent years. However, demand has increased (or has had continued strength) in other goods, services and assets. In other words, BOTH of the inflationists and deflationists can be correct if you break down the picture. You can have inflation in one part of the economic picture but not another. You can have demand and supply bring prices down in one part of the economy and not another.
Demand, for example, has been dropping like a rock in real estate. The real estate bubble of 2000-2006 artificially stimulated supply which increased the national inventory of available property (both residential and commercial) to the highest level in history. Too much supply with falling demand obviously means falling real estate prices. No amount of created money supply was able to overcome this.
The same is true for the labor markets. Labor is priced higher than the market could realistically pay for. We forget that the price of labor is more than just “the gross pay”; it also includes many other costs such as payroll taxes, workmen’s comp, etc. The high cost of labor dampened the demand for labor; especially when demand for products and services fell. Right now, the supply of labor is much higher relative to the demand for labor.
In turn, as there are more and more unemployed, that means that less money is then available for discretionary purposes such as vacations and new cars. You get the picture.
Keep in mind that there is a big difference between “deflationary” and “deflation”. It is much like the difference between “fainting” and “dropping dead”. Lower demand does have a “deflationary” effect. If less people want something then of course the price will likely drop and this can happen even if the government’s central bank keeps expanding the money supply. What does all of this then mean for us as investors and traders?
It is actually simple to figure out what to do with your money given this historic debate:
CONSIDER PUTTING YOUR MONEY IN THOSE THINGS THAT WILL BENEFIT FROM THE MONETARY SITUATION AND FROM THE DEMAND AND SUPPLY EQUATION.
I tell my readers and students to consider putting their money (retirement or otherwise) into those things tied to “HUMAN NEED”. If you have your money in those things that will benefit from BOTH inflation AND where demand and supply are strong, then this merits your attention.
Stay away from where there is a deflationary impact (such as real estate…unless you really need to buy a home). Go where the money is migrating. Given this, I like gold, silver, grains, energy and other commodities. Investors and traders should consider “human need” and view it as a mega-trend during the coming months and years. I believe that a commodities super-boom is a likely event (and is already unfolding).
I am on record as predicting an “inflationary depression” but to be more precise, we will see inflation in those things tied to “human need”. No matter how good or bad the economy will be, people will still need to eat, drink, heat their homes, etc. For these reasons (and other ones), I like commodities for the long haul.
For those deflationists that believe inflation is not possible when there are bad economic conditions, I say think again. Most hyperinflations in history happened during bad economic times. Germany (1920s), Yugoslavia (1989-1994) and Zimbabwe (2007-present) are good examples. Yes…inflation and a depression can happen simultaneously. Plan accordingly…
www.ProsperityNetwork.net
Copyright 2009. Paul Mladjenovic. All rights reserved.
Picking up from Part I of this “two part mini-series”, we are covering the inflation/deflation debate. There are tons of top-notch economic commentators on both side of the debate. As we mentioned, the debate centers on the visible sign of deflation vs. inflation…”prices”.
In part one, we highlighted what I think is an important summary of what affects “prices”:
THE PRICES OF GOODS, SERVICES AND ASSETS
ARE MOST AFFECTED BY TWO FUNDAMENTAL FACTORS:
1. THE MONEY SUPPLY (primarily enacted by government)
2. DEMAND AND SUPPLY (primarily enacted by the marketplace)
Demand and supply are an important factor in this debate and I believe that this becomes a source of misunderstanding. Inflationists talk about the money supply exploding and that this massive increase will (sooner or later) mean higher prices and even to the point of hyperinflation. The deflationists tell us that we are (and will continue to be) in a powerful deflationary environment. What gives?
Demand and supply complete the observation. Look…if a trillion dollars is printed right now but this money is not flowing toward anything (“demand”) then you probably won’t see a price increase. Demand has decreased for some goods, some services and some assets in recent years. However, demand has increased (or has had continued strength) in other goods, services and assets. In other words, BOTH of the inflationists and deflationists can be correct if you break down the picture. You can have inflation in one part of the economic picture but not another. You can have demand and supply bring prices down in one part of the economy and not another.
Demand, for example, has been dropping like a rock in real estate. The real estate bubble of 2000-2006 artificially stimulated supply which increased the national inventory of available property (both residential and commercial) to the highest level in history. Too much supply with falling demand obviously means falling real estate prices. No amount of created money supply was able to overcome this.
The same is true for the labor markets. Labor is priced higher than the market could realistically pay for. We forget that the price of labor is more than just “the gross pay”; it also includes many other costs such as payroll taxes, workmen’s comp, etc. The high cost of labor dampened the demand for labor; especially when demand for products and services fell. Right now, the supply of labor is much higher relative to the demand for labor.
In turn, as there are more and more unemployed, that means that less money is then available for discretionary purposes such as vacations and new cars. You get the picture.
Keep in mind that there is a big difference between “deflationary” and “deflation”. It is much like the difference between “fainting” and “dropping dead”. Lower demand does have a “deflationary” effect. If less people want something then of course the price will likely drop and this can happen even if the government’s central bank keeps expanding the money supply. What does all of this then mean for us as investors and traders?
It is actually simple to figure out what to do with your money given this historic debate:
CONSIDER PUTTING YOUR MONEY IN THOSE THINGS THAT WILL BENEFIT FROM THE MONETARY SITUATION AND FROM THE DEMAND AND SUPPLY EQUATION.
I tell my readers and students to consider putting their money (retirement or otherwise) into those things tied to “HUMAN NEED”. If you have your money in those things that will benefit from BOTH inflation AND where demand and supply are strong, then this merits your attention.
Stay away from where there is a deflationary impact (such as real estate…unless you really need to buy a home). Go where the money is migrating. Given this, I like gold, silver, grains, energy and other commodities. Investors and traders should consider “human need” and view it as a mega-trend during the coming months and years. I believe that a commodities super-boom is a likely event (and is already unfolding).
I am on record as predicting an “inflationary depression” but to be more precise, we will see inflation in those things tied to “human need”. No matter how good or bad the economy will be, people will still need to eat, drink, heat their homes, etc. For these reasons (and other ones), I like commodities for the long haul.
For those deflationists that believe inflation is not possible when there are bad economic conditions, I say think again. Most hyperinflations in history happened during bad economic times. Germany (1920s), Yugoslavia (1989-1994) and Zimbabwe (2007-present) are good examples. Yes…inflation and a depression can happen simultaneously. Plan accordingly…
Monday, October 5, 2009
Part I: Deflation or Inflation? Here is the Answer…
By Paul Mladjenovic
www.ProsperityNetwork.net
Copyright 2009. Paul Mladjenovic. All rights reserved.
The debate over deflation/inflation continues as some of our most astute economic observers take sides. It is interesting for me to see some great commentators take opposing positions on one of the most important topics of our time. Frankly, I think that both sides are missing part of the picture. The debate concentrates on the after shocks of inflation/deflation: prices.
“Prices” are the visible barometer that both sides of the debate gauge. The inflationists see (or warn about) “rising prices”. The deflationists see (or warn about) “falling prices”. There are very convincing cases by both sides.
In “real time” October 2009, the deflationists seem to have the upper hand. They point out that we have a “deflationary economic environment” due a variety of factors that are contributing to falling prices (such as deleveraging and unemployment). Inflationists see the current stage being set for future rising prices due to factors such as expanding money supply and a weakening dollar. What is the real deal?
First, let’s set the record straight on the terms…
Inflation: Is the condition where more money (such as a paper currency) is created by the issuing authority (the government’s central bank) and this growing supply of money is chasing a fixed basket of goods and services (and/or assets). Inflating the money supply (“monetary inflation”) is the problem and the symptom is usually rising prices (“price inflation”). Inflation is not the price of things going up…it is the price (or value) of money going down.
Deflation: Generally the opposite…The money supply is stable or shrinking relative to the supply of stuff we
buy and subsequently there is less money chasing goods and services. In this case, the “value” of money usually increases.
Therefore, for prices to rise there needs to be more (and growing) money supplied to the market relative to what is being bought. Two things need to happen for prices to rise from an inflationary perspective:
1. More money needs to be created.
2. This money needs to “chase” what is being purchased (Think “circulation” or “velocity”).
This is a crucial point. Prices won’t go up just because the money supply expands; the money has to be actively “chasing” those goods or services (or assets) for the prices to see upward movement. For prices to go up (“price inflation”), you need monetary inflation (increasing the money supply) and velocity (the money is chasing goods, services and/or assets).
In recent years, the money supply has indeed expanded dramatically…but…relatively little “chasing” has been going on. If the Federal Reserve instantly created $10 trillion dollars and gave it to you, that is definitely monetary inflation but…if you merely put it in your sock drawer and hoard it, then it would not circulate (chase stuff) and therefore you wouldn’t see “price inflation”.
This is where part of the confusion and controversy is. Inflationists point out that money supply is growing dramatically and they are correct. Deflationists point to falling prices in many areas of the economy and they are also correct. Here is what we should be aware of…
THE PRICES OF GOODS, SERVICES AND ASSETS
ARE MOST AFFECTED BY TWO FUNDAMENTAL FACTORS:
1. THE MONEY SUPPLY (primarily enacted by government)
2. DEMAND AND SUPPLY (primarily enacted by the marketplace)
Understanding the money supply (its growth or shrinkage) coupled with understanding “demand and supply” will give you a better picture of the economy. This, in turn, will make you a better analyst, money manager or investor. More on this in Part II.
How about gold and silver? How do precious metals figure in this inflation/deflation debate? The bottom line is that precious metals should be considered in a balanced, diversified wealth-building strategy regardless of which side of the debate is proven correct. Paper currencies can be produced at will but precious metals can not. Therefore, any investor or money manager interested in diversification and safety should consider precious metals (more about this in Part II).
www.ProsperityNetwork.net
Copyright 2009. Paul Mladjenovic. All rights reserved.
The debate over deflation/inflation continues as some of our most astute economic observers take sides. It is interesting for me to see some great commentators take opposing positions on one of the most important topics of our time. Frankly, I think that both sides are missing part of the picture. The debate concentrates on the after shocks of inflation/deflation: prices.
“Prices” are the visible barometer that both sides of the debate gauge. The inflationists see (or warn about) “rising prices”. The deflationists see (or warn about) “falling prices”. There are very convincing cases by both sides.
In “real time” October 2009, the deflationists seem to have the upper hand. They point out that we have a “deflationary economic environment” due a variety of factors that are contributing to falling prices (such as deleveraging and unemployment). Inflationists see the current stage being set for future rising prices due to factors such as expanding money supply and a weakening dollar. What is the real deal?
First, let’s set the record straight on the terms…
Inflation: Is the condition where more money (such as a paper currency) is created by the issuing authority (the government’s central bank) and this growing supply of money is chasing a fixed basket of goods and services (and/or assets). Inflating the money supply (“monetary inflation”) is the problem and the symptom is usually rising prices (“price inflation”). Inflation is not the price of things going up…it is the price (or value) of money going down.
Deflation: Generally the opposite…The money supply is stable or shrinking relative to the supply of stuff we
buy and subsequently there is less money chasing goods and services. In this case, the “value” of money usually increases.
Therefore, for prices to rise there needs to be more (and growing) money supplied to the market relative to what is being bought. Two things need to happen for prices to rise from an inflationary perspective:
1. More money needs to be created.
2. This money needs to “chase” what is being purchased (Think “circulation” or “velocity”).
This is a crucial point. Prices won’t go up just because the money supply expands; the money has to be actively “chasing” those goods or services (or assets) for the prices to see upward movement. For prices to go up (“price inflation”), you need monetary inflation (increasing the money supply) and velocity (the money is chasing goods, services and/or assets).
In recent years, the money supply has indeed expanded dramatically…but…relatively little “chasing” has been going on. If the Federal Reserve instantly created $10 trillion dollars and gave it to you, that is definitely monetary inflation but…if you merely put it in your sock drawer and hoard it, then it would not circulate (chase stuff) and therefore you wouldn’t see “price inflation”.
This is where part of the confusion and controversy is. Inflationists point out that money supply is growing dramatically and they are correct. Deflationists point to falling prices in many areas of the economy and they are also correct. Here is what we should be aware of…
THE PRICES OF GOODS, SERVICES AND ASSETS
ARE MOST AFFECTED BY TWO FUNDAMENTAL FACTORS:
1. THE MONEY SUPPLY (primarily enacted by government)
2. DEMAND AND SUPPLY (primarily enacted by the marketplace)
Understanding the money supply (its growth or shrinkage) coupled with understanding “demand and supply” will give you a better picture of the economy. This, in turn, will make you a better analyst, money manager or investor. More on this in Part II.
How about gold and silver? How do precious metals figure in this inflation/deflation debate? The bottom line is that precious metals should be considered in a balanced, diversified wealth-building strategy regardless of which side of the debate is proven correct. Paper currencies can be produced at will but precious metals can not. Therefore, any investor or money manager interested in diversification and safety should consider precious metals (more about this in Part II).
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